10-Q
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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38822

 

KALEIDO BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-3048279

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

65 Hayden Avenue, Lexington, MA

02421

(Address of principal executive offices)

(Zip Code)

(617) 674-9000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 Par Value

KLDO

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of October 29, 2021, there were 42,594,350 shares of registrant’s common stock outstanding.

 

 

 

 

 


Table of Contents

 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. We make such forward looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

our ability to continue as a going concern, including without limitation our ability to continue to advance the clinical development of our MMT candidates;
the success, cost and timing of our research and development activities, including statements regarding the timing of initiation and completion of clinical studies or clinical trials and related preparatory work, the period during which the results of the clinical studies or clinical trials will become available;
our ability to advance any product candidate into or successfully complete any clinical trial or identify an alternative commercial pathway for such product candidate;
our ability or the potential to successfully manufacture our product candidates for clinical studies, clinical trials or for commercial use, if approved;
our ability to obtain funding for our operations, when needed, including funding necessary to complete further development and commercialization of our product candidates, if approved, and to further expand our propriety product platform;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the potential for our identified research priorities to advance our product candidates or allow us to identify new product candidates;
our expectations regarding the timing for proposed submissions of regulatory filings, including but not limited to any Investigational New Drug application filing or any New Drug Applications;
our ability to maintain regulatory approval, if obtained, of any of our current or future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;
our ability to commercialize our products in light of the intellectual property rights of others;
our plans to research, develop and commercialize our product candidates;
our ability to attract collaborators with development, regulatory and commercialization expertise;
the expected results pursuant to collaboration arrangements including the receipts of future payments that may arise pursuant to collaboration agreements;
existing and future agreements with third parties in connection with the research and development or commercialization of our product candidates, if approved;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets either alone or in collaboration with others;
the rate and degree of market acceptance of our product candidates;
the success of competing therapies that are or become available to our customers;
our ability to contract with third-party suppliers and manufacturers and their ability to perform their obligations adequately;
our ability to attract and retain key scientific or management personnel;
the impact of changes in existing laws, regulations and guidance or the adoption of new laws, regulations and guidance;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and other technologies;
the impact of the COVID-19 pandemic on our clinical trial programs and business generally, as well as our plans and expectations with respect to the timing and resumption of any development activities that may be temporarily paused;
the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; and
other risks and uncertainties, including those discussed in Part II, Item 1A, “Risk Factors” in this Quarterly Report.

 


Table of Contents

 

 

All of our forward-looking statements are as of the date of this Quarterly Report only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report that modify or impact any of the forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede such statements in this Quarterly Report.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

 


Table of Contents

 

 

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

Page Number

PART I: FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Stockholders' Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

PART II: OTHER INFORMATION

 

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 3.

Defaults Upon Senior Securities

22

Item 4.

Mine Safety Disclosures

22

Item 5.

Other Information

22

Item 6.

Exhibits

23

Signatures

24

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,657

 

 

$

46,222

 

Prepaid expenses and other current assets

 

 

2,647

 

 

 

2,499

 

Total current assets

 

 

58,304

 

 

 

48,721

 

Property and equipment, net

 

 

7,339

 

 

 

8,462

 

Restricted cash

 

 

2,161

 

 

 

2,161

 

Total assets

 

$

67,804

 

 

$

59,344

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,559

 

 

$

5,389

 

Accrued expenses and other current liabilities

 

 

9,318

 

 

 

8,636

 

Current term debt, net of unamortized debt discount

 

 

6,384

 

 

 

2,634

 

Total current liabilities

 

 

19,261

 

 

 

16,659

 

Long term debt, net of unamortized debt discount

 

 

15,132

 

 

 

18,375

 

Other liabilities

 

 

4,211

 

 

 

3,814

 

Total liabilities

 

 

38,604

 

 

 

38,848

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 10,000,000 authorized;
   
no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized;
   
42,580,077 and 36,022,811 shares issued and outstanding at September 30, 2021 and
   December 31, 2020, respectively

 

 

43

 

 

 

36

 

Additional paid-in capital

 

 

373,352

 

 

 

294,639

 

Accumulated deficit

 

 

(344,195

)

 

 

(274,179

)

Total stockholders' equity

 

 

29,200

 

 

 

20,496

 

Total liabilities and stockholders’ equity

 

$

67,804

 

 

$

59,344

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


Table of Contents

 

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

104

 

 

$

482

 

 

$

612

 

 

$

732

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

17,411

 

 

 

15,659

 

 

 

52,229

 

 

 

41,629

 

General and administrative

 

 

5,106

 

 

 

7,201

 

 

 

16,351

 

 

 

18,677

 

Total operating expenses

 

 

22,517

 

 

 

22,860

 

 

 

68,580

 

 

 

60,306

 

Loss from operations

 

 

(22,413

)

 

 

(22,378

)

 

 

(67,968

)

 

 

(59,574

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

17

 

 

 

21

 

 

 

62

 

 

 

244

 

Interest expense

 

 

(709

)

 

 

(713

)

 

 

(2,123

)

 

 

(2,084

)

Other income (expense)

 

 

20

 

 

 

(61

)

 

 

13

 

 

 

(190

)

Total other (expense) income, net

 

 

(672

)

 

 

(753

)

 

 

(2,048

)

 

 

(2,030

)

Net loss

 

$

(23,085

)

 

$

(23,131

)

 

$

(70,016

)

 

$

(61,604

)

Net loss per share —basic and diluted

 

$

(0.54

)

 

$

(0.65

)

 

$

(1.68

)

 

$

(1.89

)

Weighted-average common shares outstanding —basic and diluted

 

 

42,577,570

 

 

 

35,554,128

 

 

 

41,613,473

 

 

 

32,605,592

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


Table of Contents

 

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

(in thousands, except share data)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Stockholders’
Equity

 

Balance at January 1, 2021

 

 

36,022,811

 

 

$

36

 

 

$

294,639

 

 

$

(274,179

)

 

 

20,496

 

Issuance of common stock, net of issuance costs $4,512

 

 

6,347,156

 

 

 

6

 

 

 

69,919

 

 

 

 

 

 

69,925

 

Exercise of stock options

 

 

63,331

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,229

 

 

 

 

 

 

4,229

 

Common stock issued upon vesting of restricted stock units, net of 21,452 shares withheld for employee taxes

 

 

49,873

 

 

 

 

 

 

(186

)

 

 

 

 

 

(186

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,042

)

 

 

(23,042

)

Balance at March 31, 2021

 

 

42,483,171

 

 

$

42

 

 

$

368,953

 

 

$

(297,221

)

 

$

71,774

 

Exercise of stock options

 

 

52,727

 

 

 

1

 

 

 

108

 

 

 

 

 

 

109

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,376

 

 

 

 

 

 

2,376

 

Common stock issued upon vesting of restricted stock units, net of 15,237 shares withheld for employee taxes

 

 

35,482

 

 

 

 

 

 

(104

)

 

 

 

 

 

(104

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,889

)

 

 

(23,889

)

Balance at June 30, 2021

 

 

42,571,380

 

 

$

43

 

 

$

371,333

 

 

$

(321,110

)

 

$

50,266

 

Exercise of stock options

 

 

2,548

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,032

 

 

 

 

 

 

2,032

 

Common stock issued upon vesting of restricted stock units, net of 2,452 shares withheld for employee taxes

 

 

6,149

 

 

 

 

 

 

(19

)

 

 

 

 

 

(19

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,085

)

 

 

(23,085

)

Balance at September 30, 2021

 

 

42,580,077

 

 

$

43

 

 

$

373,352

 

 

$

(344,195

)

 

$

29,200

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Stockholders’
Equity

 

Balance at January 1, 2020

 

 

30,127,846

 

 

$

30

 

 

$

241,412

 

 

$

(192,559

)

 

$

48,883

 

Exercise of stock options

 

 

334,444

 

 

 

 

 

 

1,561

 

 

 

 

 

 

1,561

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,725

 

 

 

 

 

 

2,725

 

Vesting of restricted shares

 

 

1,250

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,551

)

 

 

(19,551

)

Balance at March 31, 2020

 

 

30,463,540

 

 

$

30

 

 

$

245,701

 

 

$

(212,110

)

 

$

33,621

 

Issuance of common stock, net of issuance costs $306

 

 

4,750,000

 

 

 

5

 

 

 

33,182

 

 

 

 

 

 

33,187

 

Exercise of stock options

 

 

143,089

 

 

 

 

 

 

620

 

 

 

 

 

 

620

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,816

 

 

 

 

 

 

2,816

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,922

)

 

 

(18,922

)

Balance at June 30, 2020

 

 

35,356,629

 

 

$

35

 

 

$

282,319

 

 

$

(231,032

)

 

$

51,322

 

Issuance of common stock, net of issuance costs $166

 

 

399,800

 

 

 

 

 

 

3,038

 

 

 

 

 

 

3,038

 

Exercise of stock options

 

 

73,077

 

 

 

 

 

 

311

 

 

 

 

 

 

311

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,361

 

 

 

 

 

 

4,361

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,131

)

 

 

(23,131

)

Balance at September 30, 2020

 

 

35,829,506

 

 

$

35

 

 

$

290,029

 

 

$

(254,163

)

 

$

35,901

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(70,016

)

 

$

(61,604

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,754

 

 

 

1,260

 

Stock-based compensation

 

 

8,637

 

 

 

9,902

 

Amortization of debt discount

 

 

528

 

 

 

437

 

Non-cash interest expense

 

 

175

 

 

 

175

 

(Gain) loss on disposal of fixed assets

 

 

(9

)

 

 

166

 

Changes in:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(148

)

 

 

(3,961

)

Accounts payable

 

 

(1,830

)

 

 

1,558

 

Accrued expense and other liabilities

 

 

975

 

 

 

1,846

 

Net cash used in operating activities

 

 

(59,934

)

 

 

(50,221

)

Investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(693

)

 

 

(3,362

)

Net cash used in investing activities

 

 

(693

)

 

 

(3,362

)

Financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

466

 

 

 

2,494

 

Payments related to capital lease

 

 

 

 

 

(68

)

Issuance of common stock, net of issuance costs

 

 

69,925

 

 

 

34,324

 

Net settlement of vested restricted stock units to fund related employee statutory tax withholdings

 

 

(309

)

 

 

 

Payments of issuance costs related to debt

 

 

(20

)

 

 

 

Net cash provided by financing activities

 

 

70,062

 

 

 

36,750

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

9,435

 

 

 

(16,833

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

48,383

 

 

 

73,526

 

Cash, cash equivalents, and restricted cash, end of period

 

$

57,818

 

 

$

56,693

 

Supplemental cash flow information

 

 

 

 

 

 

Interest paid

 

$

1,601

 

 

$

1,393

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

 

 

$

260

 

Vesting of restricted stock

 

$

 

 

$

3

 

Settlement from Proceeds of issuance of common stock

 

$

 

 

$

1,900

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share amounts)

1. Nature of the Business, Basis of Presentation, and Going Concern

Kaleido Biosciences, Inc. and its wholly owned subsidiaries (collectively the “Company”) is a clinical-stage biotechnology company that was incorporated in Delaware on January 27, 2015 and has a principal place of business in Lexington, Massachusetts. The Company uses its differentiated, small molecule approach to develop compounds for the treatment of inflammatory conditions and diseases, and potentially other conditions and diseases, by selectively targeting the resident microbiome to restore gut-immune homeostasis.

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of preclinical studies (including ex vivo assays), clinical studies and clinical trials, the need to obtain marketing approval for its drug candidates and if applicable, its consumer products, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to supply sufficient amounts of Microbiome Metabolic Therapies, (“MMT” or “MMTs”) at an acceptable quality level.

On June 4, 2020, the Company completed a public offering (the “Offering”), pursuant to which it issued and sold 4,750,000 shares of its common stock. The aggregate net proceeds received by the Company from the Offering were $33,182. On July 1, 2020, 185,000 shares were exercised under the Underwriters’ overallotment option for net proceeds of $1,260.

On August 4, 2020, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with a sales agent for the sale of up to $50,000 of the Company’s shares of common stock, from time to time in an at-the-market public offering (the “ATM”). The sales agent is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of the Company’s common stock pursuant to the Sales Agreement. During the year ended December 31, 2020, the Company sold 361,299 shares of its common stock under the ATM which resulted in aggregate net proceeds of $3,432 after payment of related commissions. During the quarter ended March 31, 2021, the Company sold 309,656 shares of its common stock which resulted in aggregate net proceeds of $4,860. No sales of common stock were made under the ATM during the quarters ended June 30, 2021 or September 30, 2021. As of September 30, 2021, there was $41,451 available under the ATM.

On February 8, 2021, the Company completed a public offering (the “2021 Offering”), pursuant to which the Company issued and sold 6,037,500 shares of common stock for net proceeds of $65,265, which included the full exercise of the Underwriters’ overallotment option.

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2021, the Company had an accumulated deficit of $344,195. The Company expects to continue to generate operating losses and use cash in operations in the foreseeable future. As of September 30, 2021, the Company had cash and cash equivalents of $55,657, and management expects that the cash and cash equivalents at September 30, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements into the second quarter of 2022. Based on its recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance its future operations, the Company has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company will require substantial additional capital to fund its research and development and ongoing operating expenses. These capital requirements are expected to be funded through debt and equity offerings as well as possible strategic collaborations with other companies. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce or eliminate its product development or future commercialization efforts, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself. While there can be no assurance the Company will be able to successfully reduce operating expenses or raise additional capital, management believes that its historical success in managing cash flows and obtaining capital will continue in the foreseeable future.

 

A novel strain of coronavirus (COVID-19) was first identified in late 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help minimize the risk of the virus to its employees, including implementing a hybrid work environment, implementing safety measures for those employees currently going into the office to complete their work and limiting business-related travel.

 

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2. Summary of Significant Accounting Policies

Unaudited interim financial information

The condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 3, 2021.

All intercompany transactions and balances of the subsidiaries have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported interim periods.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Collaboration Revenue

The Company analyzes its collaboration arrangement to assess whether it is within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company will assess whether aspects of the arrangement between it and their collaboration partner are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, it will account for those aspects of the arrangement within the scope of ASC 606, Revenue from Contracts with Customers, by applying the five-step model described below. If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, the Company will recognize its allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred.

The Company recognizes revenue after applying the following five steps:

 

(1)
Identification of the contract, or contracts, with a customer,
(2)
Identification of the performance obligations in the contract, including whether they are distinct within the context of the contract,
(3)
Determination of the transaction price, including the constraint on variable consideration,
(4)
Allocation of the transaction price to the performance obligations in the contract, and
(5)
Recognition of revenue when, or as, performance obligations are satisfied.

 

If a contract is determined to be within the scope of ASC 606 at inception, the Company assesses the goods or services promised within such contract, determines which of those goods and services are performance obligations, and assesses whether each promised good or service is distinct. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

 

The Company may provide options to additional goods or services in such arrangements exercisable at a customer’s discretion. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The identification of material rights requires judgments related to the determination of the value of the underlying good and services to the option exercise price.

 

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The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. The Company then allocates the transaction price to each performance obligation based on the relative standalone selling prices (“SSP”). SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

 

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

 

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the use of an output or input method.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as other current assets in the Company's balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in other current assets.

 

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require the Company to record most leases on the balance sheet. The Company will use a modified retrospective approach of adoption for ASU 2016-02. As an emerging growth company, this standard is required to be adopted on January 1, 2022, and the Company is evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. The Company expects to recognize a material lease obligation and right to use asset upon adoption. 

 

3. Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, the assets carried at fair value on a recurring basis:

 

 

 

Fair Value Measurements
as of September 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included within cash and cash
   equivalents

 

$

25,415

 

 

 

 

 

 

 

 

$

25,415

 

Total

 

$

25,415

 

 

 

 

 

 

 

 

$

25,415

 

 

 

 

Fair Value Measurements
as of December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included within cash and cash
   equivalents

 

$

45,410

 

 

 

 

 

 

 

 

$

45,410

 

Total

 

$

45,410

 

 

 

 

 

 

 

 

$

45,410

 

 

The fair value of money market funds was measured by the Company based on quoted market prices.

Financial Instruments Not Recorded at Fair Value – The carrying value of cash, cash equivalents, restricted cash, accounts payable and accrued expenses that are reported on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt approximates fair value as evidenced by the recent refinancings.

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4. Property and Equipment, net

Property and equipment consist of the following:

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Laboratory equipment

 

$

7,838

 

 

$

6,843

 

Office and computer equipment

 

 

1,590

 

 

 

1,590

 

Leasehold improvements

 

 

1,910

 

 

 

1,910

 

Construction in process

 

 

1,144

 

 

 

1,612

 

Property and equipment – at cost

 

 

12,482

 

 

 

11,955

 

Less accumulated depreciation and amortization

 

 

(5,143

)

 

 

(3,493

)

Property and equipment – net

 

$

7,339

 

 

$

8,462

 

 

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 was $594 and $503, respectively. Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 was $1,754 and $1,260, respectively. During the nine months ended September 30, 2021, the Company recorded a gross fixed asset disposal of $132 and related accumulated depreciation of $103. The Company received $38 in exchange for the sale of equipment, resulting in a net gain of $9. During the nine months ended September 30, 2020, the Company recorded gross fixed asset disposal of $1,036 and related accumulated depreciation of $870.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Payroll and benefits

 

$

2,533

 

 

$

2,943

 

Consulting service

 

 

419

 

 

 

1,049

 

Legal service

 

 

99